Robinhood declared today that it would be launching cash management services to compete with major banks and financial services. That is the second attempt by the firm to roll out such services; the last attempt was some ten months ago with the corporate attempting to launch checking and savings accounts to users. The last attempt didn’t go well with the plan and was canceled because of issues regarding regulations and insurance coverage for deposits. The earlier accounts were anticipated to have a savings rate of 3% APY; however, the cash management services now being offered may have an initial APY of 2.05% instead.
With these new services, Robinhood moves users’ cash not invested in securities into banks that have partnered with the agency to offer these services. Interest might be paid to the account every month on the entire balance in the account. The rate of interest is variable; thus, it could go up or down depending on market factors and at the discretion of the associate banks. Since the cash management program makes use of banks in a partnership, this also signifies that these cash deposits will FDIC insured, which was one of the concerns the company was facing with their earlier attempts to offer checking and savings accounts.
The FDIC insurance will cover as much as $1.25 million or $250,000 per bank following normal FDIC guidelines. These services are anticipated to help Robinhood continue to develop its customer base, which presently sits at 6 million clients and to diversify its income sources.